Email this article to a friend

HBOS Monday warned that falling property prices and deteriorating credit conditions were hitting its business hard as it announced plans to raise Â£11.5bn (â¬15.7bn) in capital from the UK government.

It said it remained determined to be bought by Lloyds TSB even though the terms of the deal have been changed to the detriment of HBOS shareholders.

HBOS shares continued to slide when the London market opened Monday, trading down 9 pence, or 7.4%, at 115 pence at 0716 GMT.

It said it would raise the capital by selling to the UK government £8.5bn shares and £3bn in preference shares that will initially pay a 12% coupon to take its Tier 1 capital ratio to 12%.

But it warned that "underlying profitability is .. now being impacted by a significant deterioration in credit conditions and falling property prices with associated increased provisioning in both the Retail and Corporate businesses."

It also warned that higher funding costs and fair-value adjustments to its treasury portfolio would hit profits.

Lloyds is now prepared to offer HBOS shareholders 0.605 Lloyds shares for each HBOS share, instead of the original 0.833 shares.